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Also, along the way, you may delve into rental property, and eventually even larger projects such as apartments or commercial property. In today's uncertain real estate market, holding properties as rentals, will provide a sure source of steady income and may net you significant gains on the sale of these properties in the not-too-distant future.
Here's another convenient worksheet - one to use when analyzing the benefits of rental property. We've included some examples for you:
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ROI Analysis on Mid-Priced Rental Homes
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3BR/2BA
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3BR/2BA
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3BR/2BA
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3BR/2BA
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3BR/1BA
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3BR/1BA
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(leveraged)
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(cash purch.)
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(leveraged)
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(cash purch.)
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(leveraged)
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(cash purch.)
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Average purchase price per home:
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$125,000.00
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$125,000.00
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$115,000.00
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$115,000.00
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$100,000.00
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$100,000.00
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Closing Costs
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$ 3,000.00
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$ 1,000.00
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$ 3,000.00
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$ 950.00
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$ 2,500.00
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$ 900.00
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$128,000.00
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$126,000.00
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$118,000.00
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$115,950.00
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$102,500.00
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$100,900.00
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Mortgage, based on 80%
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$(100,000.00)
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$(92,000.00)
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$(80,000.00)
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Cash investment
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$ 28,000.00
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$126,000.00
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$ 26,000.00
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$115,950.00
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$ 22,500.00
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$100,900.00
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Potential Monthly Gross Income
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$ 1,500.00
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$ 1,500.00
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$ 1,300.00
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$ 1,300.00
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$ 1,100.00
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$ 1,100.00
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10% Vacancy Factor
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$ (150.00)
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$ (150.00)
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$ (130.00)
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$ (130.00)
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$ (110.00)
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$ (110.00)
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Effective Gross Income
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$ 1,350.00
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$ 1,350.00
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$ 1,170.00
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$ 1,170.00
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$ 990.00
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$ 990.00
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Approximate cash expenses-monthly:
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Average property taxes
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$ 125.00
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$ 125.00
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$ 105.00
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$ 105.00
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$ 85.00
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$ 85.00
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Fire Insurance
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$ 40.00
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$ 40.00
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$ 40.00
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$ 40.00
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$ 35.00
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$ 35.00
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Management (10% of rent)
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$ 135.00
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$ 135.00
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$ 117.00
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$ 117.00
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$ 99.00
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$ 99.00
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Repairs & Maintenance
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$ 80.00
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$ 80.00
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$ 70.00
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$ 70.00
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$ 60.00
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$ 60.00
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Reserve for Replacements
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$ 70.00
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$ 70.00
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$ 65.00
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$ 65.00
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$ 60.00
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$ 60.00
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Net Operating Income (NOI)
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$ 900.00
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$ 900.00
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$ 773.00
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$ 773.00
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$ 651.00
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$ 651.00
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Debt Service @ 6.0% interest rate,
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360-mo. amo.
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$ (600.00)
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$ -
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$ (552.00)
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$ -
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$ (480.00)
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$ -
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Before-tax Cash Flow
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$ 300.00
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$ 900.00
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$ 221.00
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$ 773.00
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$ 171.00
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$ 651.00
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Computing Taxes
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NOI
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$ 900.00
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$ 900.00
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$ 773.00
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$ 773.00
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$ 651.00
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$ 651.00
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Add Reserves
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$ 70.00
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$ 70.00
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$ 65.00
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$ 65.00
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$ 60.00
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$ 60.00
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Less: Interest (based on 1st month
of mortgage payment
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$ (500.00)
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$ -
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$ (460.00)
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$ -
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$ (400.00)
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$ -
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Less Depreciation (Purch.Price +
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Closing Costs ÷ 330 mo.)
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$ (388.00)
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$ (382.00)
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$ (358.00)
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$ (352.00)
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$ (311.00)
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$ (306.00)
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Taxable Income
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$ 82.00
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$ 588.00
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$ 20.00
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$ 486.00
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$ -
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$ 405.00
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Compute After-Tax Cash Flow
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Before-Tax Cash Flow (after adding
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reserves)
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$ 370.00
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$ 970.00
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$ 286.00
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$ 838.00
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$ 231.00
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$ 711.00
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Less tax (assuming 25% rate)
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$ (20.50)
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$ (147.00)
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$ (5.00)
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$ (122.00)
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$ -
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$ (101.00)
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After-Tax Cash Flow
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$ 349.50
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$ 823.00
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$ 281.00
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$ 716.00
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$ 231.00
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$ 610.00
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Compute After-Tax Return on
Investment
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After-tax-cash-flow x 12 ÷ Cash
investment
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15.00%
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7.80%
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13.00%
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7.40%
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12.30%
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7.30%
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Average annual historical appreciation
over the years
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5.00%
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5.00%
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5.00%
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5.00%
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5.00%
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5.00%
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Anticipated annualized return
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20.00%
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12.80%
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18.00%
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12.40%
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17.30%
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12.30%
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Now, why don't you fill in the blanks for your own proposed rental scenario?
At EquityMax, we have the expertise to introduce you to all of these areas.
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